Unit 6 Municipal Bonds Flashcards
An investor subject to AMT should invest in…
Public Purpose Muni Bonds
The bond counsel validates …
tax exempt status and legal authority of municipality to issue bonds.
A ________ legal opinion is preferred, which focuses on…
unqualified
federal law and federal taxes
Limited tax GO secured by
specific tax at a specified max rate.
Riskier than regular GO bonds
Overlapping debt applies to _____ bonds.
GO
Certificate of Participation
revenue bond where investors participate in lease payments
Feasibility study applies to…
revenue bonds. Used to gauge likelihood of generating enough revenue.
Bonds with a net revenue pledge pays
expense from gross revenue first, and then the debt
Additional bonds test
used to determine if issuer has financial strength to issue more bonds
Build America Bonds (BABs)
taxable munis where federal gov subsidizes 35% of the interest expense to bond holders (tax credit).
Auction Rate Securities:
long term variable rates bonds tied to short term rates
rated as long term
priced as short term
trade at par
interest rate resets periodically at the CLEARING RATE
Variable Rate Demand Obligations (VRDOs)
floating rate munis with coupon rate that resets periodically based on benchmark
usually has put features
interest rate resets handled by remarketing agent
TANS, BANS, and RANS
mature one year or less
offer liquidity
low rate of tax exempt interest
Tax anticipation notes (TANs)
finance current operations in anticipation of future tax receipts
Bond Anticipation Note (BANs)
raise short term funds that are repaid through muni pending bond issue
Who approves new muni securities account?
Designated principal with either series 24 or 53
Defeased Bond
funds escrowed to maturity
Sinking fund
funds set aside annually to pay off bonds at maturity
more marketable
The Visible Supply
published by Bond Buyer
volume of new muni bonds issued in the next 30 days
For a muni to be good delivery without legal opinion, it must be marked…
ex-legal
MSRB rules indicate that advertisements for munis must be maintained for…
4 years
Notice of Sale
used by muni to invite bids in competitive underwriting
Total Takedown =
additional takedown + selling concession
Premium bonds cost basis adjusts through…
Amortization
Discount bonds cost basis adjusts through…
Accretion
Discount muni bonds not taxed
OIDs
New bond issue, interest begins on the
dated date
